No one knows when and how the pandemic will end. In the post-COVID-19 world, however, two things are certain: accelerated digitalization and a more confident China.
The 2008-09 global financial crisis was the first significant shift in power from the United States to China. During the current COVID-19 pandemic from 2020, China has been one of the only major economies to have posted growth and, as a result, Beijing is becoming increasingly confident that it is on an equal footing with the West.
On March 5, at the National People’s Congress held in Beijing, Chinese Premier Li Keqiang announced major goals for the 14th Five-Year Plan. The centerpiece of this new plan was the development of a digital economy. The plan aims to accelerate the development of digitization and to build a “digital China.”
China has been making full use of digital technology in its response to COVID-19. While several countries implemented contact tracing apps to combat the spread of COVID-19, such as TraceTogether in Singapore and COCOA in Japan, China implemented its Health Code app immediately after the COVID-19 outbreak to control the movement of people.
China’s next target is a digital vaccine certificate. On March 8, China launched a digital vaccine passport for international travel through Tencent’s WeChat messaging and mobile payment app. The digital certificate records and displays when and what type of vaccine doses its user has received, as well as its user’s negative COVID-19 test result.
The World Health Organization has taken a cautious approach to vaccine passports. The organization’s position is that “national authorities and conveyance operators should not introduce requirements of proof of COVID-19 vaccination for international travel as a condition for departure or entry” as there are still critical unknowns regarding the efficacy of vaccinations in reducing transmission.
Currently, yellow fever is the only disease mentioned in the WHO’s International Health Regulations, a legal framework on public health emergencies, to allow countries to require proof of vaccination for international travelers. The proof is known as a paper-based Yellow Card, which is not a passport per se. Travelers must hold both passports and yellow cards, where required.
Despite such warnings from the WHO, China is accelerating the implementation of its vaccine passport. Before China’s announcement, there had been similar initiatives. The World Economic Forum and a broad coalition of travel industries have been developing a certificate called CommonPass, while the International Air Transport Association has released documentation called IATA Travel Pass. China is trying hard to take the lead in developing digital vaccine certificates.
The control of COVID-19 is not the only area China aims at leading in the world. In the post-COVID-19 era, the Central Bank Digital Currency (CBDC) will be the next field of global competition. As China moves forward with digitalization, there is a growing concern about the nation’s Digital Currency Electronic Payment, or the digital renminbi. China’s central bank, the People’s Bank of China, began a feasibility study of digital currencies in 2014. In January 2020, the central bank announced that the basic design of its digital currency, industry standards and main features were completed.
China has taken the lead in becoming a cashless society. Four out of five payments are conducted by either Tencent’s WeChat Pay or Alibaba’s Alipay. These two payment services make up as much as 94% of China’s mobile payments industry and have more than 1 billion users each.
Pilot programs using digital renminbi have been conducted on a trial basis throughout China, beginning in Shenzhen before moving to Suzhou, Chengdu, Xiong’an and, more recently, Shanghai. Shanghai Tongren Hospital has introduced a physical card for digital yuan. Digital currency trials have been conducted in payments for living expenses, transportation, retail shopping, restaurants and government services.
China has shown its willingness to become the first major economy to introduce a digital currency, showcasing it as a payment system at the 2022 Beijing Winter Olympics. Also, as counterfeit banknotes are rampant, China is concerned about capital outflows through cryptocurrencies. The central bank most likely sees substantial advantages in collecting vast amounts of transaction data and monitoring domestic and cross-border payments through a digital renimnbi system managed by a single identification code.
The G7 central banks are wary of the potential impact on the effectiveness of their traditional monetary policies, which are in the form of fiat currencies, such as the U.S. dollar. In the financial industry of those G7 countries, the U.S. dollar. is still recognized as the world’s dominant reserve currency. Financial institutions are of the view that the yuan’s internationalization has stalled, that it will not spread outside China and that the dollar reserve currency regime will be maintained.
Yet, there are two reasons that the digital renminbi may pose a serious threat to the dollar’s role as the primary reserve currency for the global economy.
First, the digital renminbi may become a common platform for CBDCs, especially in emerging and developing countries. China has an abundance of technology and engineers to make CBDC a reality with overwhelmingly high convenience and a good user interface. Given that its currency’s internationalization has stalled, there is a possibility that China has been trying to establish a yuan-based reserve currency system through a leapfrog strategy using the digital renminbi.
Second, the digital renminbi might become the international standard for CBDCs. China has refrained from promoting “Made in China 2025” to the outside world and has begun formulating the “China Standard 2035.”
So far, the yuan has weak worldwide credibility as a reserve currency. Toward standardizing the CBDC platform, the Chinese government may proceed with several steps, including: technological development; demonstration experiments; patent accumulation; and the involvement of international organizations, such as the International Organization for Standardization and the International Telecommunication Union.
Since the beginning of the COVID-19 outbreak in the country, China has taken full advantage of its digital technology and big data to control COVID-19 and its people. Now, China is trying to take the lead in the standardization of digital vaccine certificates. In a post-COVID-19 era, provided China has gained more confidence, the digital renminbi could genuinely challenge the dollar-based international monetary regime.
Yoshiyuki Sagara is a fellow at the independent think tank Asia Pacific Initiative.
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